The KORUS Blues



Setting aside Syria, South Korea may be the only country in the world with politics more polarized than the United States.  While in Seoul last week I was reminded of this when the leaders of the political opposition attempted to march on the US embassy to deliver letters addressed to President Obama and Vice President Biden demanding that the Korea-US (KORUS) free trade agreement be re-negotiated or abrogated.

Among the demands is the elimination of the investor-state dispute settlement provision, which the critics argue robs South Korea of its sovereignty. But investor-state dispute settlement mechanisms have been included without controversy in more than 80 other South Korean trade agreements. Another demand is for goods produced in the Kaesong Industrial Complex (KIC) to be considered as “made in South Korea.”. The issue of national treatment for KIC products was considered—and rejected in the negotiations.  Extraterritorial application of an FTA is an anathema in Congress, and application of such a provision to North Korea today is inconceivable. Instead, the agreement establishes a binational commission to consider extraterritorial application of the agreement, if circumstances in North Korea changed sufficiently to warrant the extension of KORUS north. Accordingly, under an abrupt collapse and unification scenario, duty-free treatment could be extended to North Korea to jumpstart economy activity there. In contrast to the US, in its pre-negotiations with South Korea over a possible FTA, China has reportedly indicated that it is open to treating goods produced at Kaesong as “made in South Korea.”

The mechanism for deep-sixing KORUS would be Article 24.5 which states, “This Agreement shall terminate 180 days after the date either Party notifies the other Party in writing that it wishes to terminate the Agreement.” Opponents of the pact claim that it would only take a fax from the Blue House to terminate the agreement.  I have tended to discount these calls to renegotiate or abrogate KORUS, but the more the opposition makes of the issue, the more difficult it will be for them to back away from it if they reach power. If the opposition makes this a central issue in the campaign and wins the National Assembly elections in April, as now seems likely, and if they continue to press the issue and they win the December Presidential election, the new President will face a real dilemma when he comes to power in February 2013.

It would be foolhardy for the government of South Korea, a highly open medium-sized economy dependent on international trade, to abrogate a free trade agreement with the United States, the world’s largest economy.  If nothing else it would destroy South Korea’s credibility with other prospective free trade partners, and could have spillovers into other aspects of the bilateral relationship with the US.

The obvious solution to this conundrum would be to implement the agreement, generate demonstrable benefits, and build public support.  We may have roughly one year to do so.

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